CHEMICAL INDUSTRY

ORIGIN, GROWTH & DEVELOPMENT PRESENT STATUS

Submitted By Pradeep T Prasad T S Prashanth Nair Rajesh

Introduction
Chemical industry is one of the key industries in contribution to the world economic output and employment. The industry provides products and services that improve the quality life of customers and communities. Product-lines of the chemical industry are used in every area of life such as food, clothing, housing, communication, transport as well as entertainment. Thus, the business cycles of end user segments significantly affect the chemical industry.

The chemical industry uses raw materials such as gas, oil, coal, water and minerals to produce a vast array of products. Chemical industry is also major demand driver for other sectors such as energy, information technology, and environmental technology. The industry is heterogeneous in nature with many sectors such as organic, inorganic, dyes, paints, pesticides and specialty chemicals.

The chemical industry is energy intensive in its manufacturing process as also in terms of usage of raw materials. While using natural gas, natural gas liquids, oil, coal and electricity as energy, the industry also draws up its raw materials from such energy sources as primary ingredient in production. The industry is one of the largest employers. The role of Research & Development (R&D) is crucial in the chemical industry due to the constant need for innovation

Origin and Growth of Indian chemical Industry The development of chemical industry began with a modest soap production in 1890. From such a rudimentary start, certain milestones were reached in the form of town gas production for the cities of Bombay and Calcutta, a drug manufacturing unit in 1890s a nitric acid concentration unit 1904 for use in explosives. This was followed, after a relative lull between two world wars, by a diversification into inorganic fertilizers by 1940,the first unit being 25TPD ammonia plant based on wood gasification. Synthetic dyestuffs and pharmaceuticals by 1947 .Refineries and units for pesticides and textiles auxiliaries were set up by 1955, man made fibers by 1962 and petrochemicals by the mid 1960s. The growth of chemical industry has been particularly rapid from the mid 1960s in the wake of various oil and gas finds in quick succession particularly in the offshore oil fields such as Bombay High, Bassein, Ratnagiri in the Arabian Sea and the KG basin in the Bay of Bengal.

Indian Chemical Industry Scenario

Chemical Industry is one of the oldest industries in India, which contributes significantly towards industrial and economic growth of the nation. It is highly science based and provides valuable chemicals for various end products such as textiles, paper, paints and varnishes, leather etc., which are required in almost all walks of life. The Indian Chemical Industry forms the backbone of the industrial and agricultural development of India and provides building blocks for downstream industries.

Chemical Industry is an important constituent of the Indian economy. Its size is estimated at around US$ 35 billion approx., which is equivalent to about 3% of India's GDP. The total investment in Indian Chemical Sector is approx. US$ 60 billion and total employment generated is about 1 million. The Indian Chemical sector accounts for 13-14% of total exports and 8-9% of total imports of the country. In terms of volume, it is 12th largest in the world and 3rd largest in Asia. Currently, per capita consumption of products of chemical industry in India is about 1/10th of the world average. Over the last decade, the Indian Chemical industry has evolved from being a basic chemical producer to becoming an innovative industry. With investments in R&D, the industry is registering significant growth in the knowledge sector comprising of specialty chemicals, fine chemicals and pharmaceuticals. The Indian Chemical Market Segment wise is

Market Segment Basic Chemicals Specialty Chemicals High End / Knowledge Segment Total Value (billion US$) 20 9 6 35

The Indian Chemicals Industry comprises both small and large-scale units. The fiscal concessions granted to small sector in mid-eighties led to establishment of large number of units in the Small Scale Industries (SSI) sector. Currently, the Indian Chemical industry is in the midst of a major restructuring and consolidation phase. With the shift in emphasis on product innovation, branch building and environmental friendliness, this industry is increasingly moving towards greater customer orientation. Even though India enjoys an abundant supply of basic raw materials, it will have to build upon technical services and marketing capabilities to face global competition and increase its share of exports.

India also produces a large number of fine and specialty chemicals, which have very specific uses and are essential for increasing industrial production. These find wide usage as food additives and pigments, polymer additives, anti-oxidants

Industry Segmentation The chemical industry is generally categorized into the following three broad segments: 1.Basic chemicals/commodity chemicals This include organic and inorganic chemicals, bulk petrochemicals, other chemical intermediates, plastic resins, synthetic rubber, man-made fibers, dyes and pigments, printing inks. 2.Specialty chemicals These are low volume but high-value compounds, and are also known as performance chemicals. These chemicals are derived from basic chemicals and are sold on the basis of their function. For example, paint, adhesives, electronic chemicals, water management chemicals, oilfield chemicals, flavors and fragrances, rubber processing additives, paper additives, industrial cleaners and fine chemicals. Sealants, coatings, catalysts also come under this category. 3.Knowledge chemicals These include agrochemicals and biological substance

Group-wise capacity & production of major chemicals in organized sector Main Gro Installed Capacity 2009-10 2

1 I: ALKALI II: NORGANIC III: ORGANIC IV: PESTICIDES V DYES TOTAL MAJOR CHEMICALS (I+II+III+IV+V)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 3 4 5 6 7 8 9 10 11 12

7489600 4342305 4792345 5070374 5271675 5474614 5268987 5268987 5427233 5601913 5981204 715915 374132 403827 440608 508157 543965 602309 602309 512513 517511 572052

1940457 1166575 1352653 1473855 1505895 1545262 1545442 1545442 1254171 1281169 1339589 146471 54551 81803 24789 69565 26196 85118 25940 93966 28498 82240 29541 84701 32552 84701 32552 85218 37636 82185 51080 81934 47036

10346994 5989604 6644586 7095895 7408191 7675622 7533991 7533991 7316771 7533858 8021815 Production (Figures in MT)

GROWISE EXPORT AND IMPORT OF CHEMICAL PRODUCTS

Group Commodity Level Code TRADE 200102 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

INORGANIC CHEMICALS *

2 DIGIT- 28

Export Import

1259 5730

1946 5579

1949 5916

2871 8130

2431 10446

3629 11473

3317 11393

5166

4540 16270

ORGANIC CHEMICALS

2 DIGIT -29

Export

7624

10190

12975

16269

21504

25950

28870

34058

35241

Import DYEING, TANNING AND COLOURING MATTER 2 DIGIT -32 Export Import

8795 2436 1138

10695 2943 1344

14363 3112 1617

18785 3111 1878

22776 3750 2245

27330 4562 2720

32642 5327 3031 5900

44505 4328 4328

PESTICIDES

4 3 8 0 8

DIGIT Export

1356

1487

1746

2096

2791

2877

5969

8615

8611

Import

362

287

501

712

754

806

7357

11579

Grand Total

Export

12675

16566

19782

24347

30476

37018

43483

53739

54948

Import

16025

17905

22397

29505

36221

42329

54423

76682

Development of Indian chemical industry

Chemical industry is one of the oldest industries in India. It is estimated that the size of Indian chemical industry is around US$ 30 billion. Volume of production in chemical industry positions India as third largest producer in Asia(next to China and Japan), an twelfth largest in the world. The industry, comprising both small scale and large units (including MNCs) produces several thousands of products and bi-products, ranging from plastics and petro-chemicals to cosmetics and toiletries. A significant share (around one-third) of production by chemical industry is consumed by itself. The chemical industry accounts for about 13% share in the manufacturing output and around 5% in total exports of the country. The chemical industry contributes around 20% of national revenue by way of various taxes and levies. The chemical industry produced around 8 million metric tonnes each of basic chemicals and basic petrochemicals, and around 10 million metric tonnes of petrochemical intermediaries in2005-06.

Gujarat is the major contributor to the basic chemical as well as petrochemical production with 54%and 59% share in all India production, respectively. Other major states producing basic chemicals include Maharashtra (9%), Tamil Nadu and Uttar Pradesh (6% each). Other major states producing petrochemicals include Maharashtra (18%), West Bengal (12%), Uttar Pradesh (4%),and Tamil Nadu (3%). The below showed chart shows trend of production over years It may be noted that the chemical has an steady performance over the years

The chemical industry which includes petrochemical and its products,drugs, fertilizers.Dtes etc plays an important role in the Indian ecomomy. It provides around 3% for the overall GDP the country. The chemical and petrochemical aonstitutes around 14% of overall domestic industrial activity.

The petrochemical industry mainly comprises of fibres, polymers , elastomers, synthetic detergents, performance plastic etc

WPI based Inflation YOY growth in Percent

Apr 10 10.9 5.5 May 10 10.5 5.2 Jun 10 10.3 5.2 Jul 10 10.0 4.4 Aug 10 8.9 4.3 Sep 10 9.0 4.6 Oct 10 9.1 4.9 Nov 10 8.2 5.2 Dec 10 9.4 5.0 Jan 11 9.5 5.5 Feb 11 9.5 6.6 Mar 11 9.7 7.4 Apr 11 8.7 6.0 May 11 9.1 7.1

All Commodities Chemicals and products

Table 1 Performance of the Corporate Sector Growth in Net Sales, Total Expenses and Profits (%)
Q1 Q2 2009-10 Q3 Q4 Q1 Net sales (%) 15.95 15.67 2010-11 Q2 Q3 Q4

All industries

0.03

-6.83

5.14

17.76

17.81

23.50

Chemicals

13.68

-5.15

3.27

19.85

14.77

17.48

17.28

17.86

Total expenses (%) All industries 2.98 -4.52 3.89 11.78 13.19 18.06 16.56 23.52

Chemicals

7.61

-7.65

-0.34

5.16

15.02

30.87

18.39

21.27

PBDIT (%) All industries 4.04 -2.44 18.22 33.34 16.45 43.76 22.39 24.78

Chemicals

6.68

25.89

28.42

149.36

9.54

283.30

40.54

14.56

Present performance level of chemical sector

Performance of the Chemicals sector Q4, 2010-11

Chemical: Growth in Net Sales and Total Income
80 70 60 50 40 30 20 10 0 -10

Net sales registered a growth of 17.8 percent in Q4, 2010-11.In Q4, 2009-10, net sales had shown a growth of 19.9 percent.
Ratio of exports to net sales has shown a decline from 7.2 percent in Q4, 2009-10 to 4.3 percent in Q4, 2010-11.

Q 0 1 9 - 10

Q 0 2 9 - 10

Q 0 3 9 - 10

Q 0 4 9 - 10

Q 1 1 0 - 11

Q 1 2 0 - 11

Q 1 3 0 - 11

Net Sales

Total income

Chemical: Growth in Expenses (%)

40 30 20 10 0 -10 Total Expenses Raw material Stores spares -20 & purchase of -30 finished goods -40 -50 Q409-10 Q410-11
Salaries &
wages

Q4 2010- 11

Total expenses have shown a growth of 21.3 percent in the fourth quarter of 201011. In Q4, 2009-10, total expenses had shown a growth of 5.1 percent. Expenses on interest costs and raw materials have seen a sizable jump during the quarter under review.

Power & Fuel

Expenses

Interest

Chemicals: PAT /Total Income

35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

31.3

PAT has increased by 20.9 percent in Q4, 2010-11. The margins continue to be under pressure and stood at 11.7 percent in Q4, 2010-11.

9.5

10.7

11.4

8.4

10.7

10.9 11.7

PAT/ Total Income

Q4 2010 - 11

Q 0 1 1 9 -0

Q 0 1 2 9 -0

Q 0 1 3 9 -0

Q 0 1 4 9 -0

1 -1 1 -1 Q 1 Q 2 1 0 1 0

Q 1 1 3 0 -1

Major Problems faced by Chemical Industry sector

Indian chemical sector has grown a long way since its early days of independence. The sector has grown from a small-scale sector to multi-dimensional sector, which is taking on the challenges of globalization. Now, Indian chemical industry holds a recognized position in the global map; however, there are few factors, which hinders the growth of the industry. These include: High prices of basic feed stock Basic raw materials constitute major portion of cost of production (30%to 60%) in the chemical industry. Indian chemical industry either uses natural gas or crude oil as feed stockfor manufacturing process. The fluctuations in oil prices therefore affect the growth projections of the firms.

SSI reservation / Fragmented nature of industry The Indian chemical industry is having a fragmented structure with more number of units in small-scale sectors spread in various parts of the country. The installed capacities in most of the small-scale units are smaller as compared to global scales. The limitation in capacity in the SSI sector put them in disadvantageous position while tapping export opportunities with large volume.15

Low R&D levels The level of R&D investments in the Indian chemical sector is low are as for strengthening of R&D in chemical industry include improvements in manufacturing process for reduction in cost of production, application development to diversify demand, and new product development. Low Level of ICT interface

The usage of information technology in Indian chemical industry is relatively lower, as most of the units are in the small-scale sector. Application of information technology in the chemical sector is required for equipment design, chemical engineering, and process simulation that have helped in reducing product and process development time. Information technology should also be increasingly used in the area of R&D, especially in collaborative research.

Low Level of Brand Development

Indian chemical producers, excepting a few large producers, generally sell their products as generic products without brand development. There is also low level of interest amongst development, product development as also market development. Low Level of Common Infrastructure In general, due to its very nature, the chemical / petrochemical industry requires certain basic infrastructure facilities, both in the process chain as also in the supply chain. At present, each unit has to create specialized facilities on its own which leads to duplication of efforts and investment. If chemical units are clustered in close proximity, the required infrastructure could be vertically integrated resulting in cost reduction. Environmental Regulations As with other industries, the chemical industry needs to comply with regulations such as

Occupational Safety and Health and Process Safety Management regulations. Environmental safety, occupational safety and process management safety can easily be met if a firm is manufacturing large volume of single chemical. But it may not be relatively feasible for the firms who manufacture low volume and large number of chemicals in a single plant.

Dumping / Import Competition Chemical industry is the second largest industry that has attracted large number of anti-dumping actions in the world. In India, chemicals and petrochemicals industry is the largest segment that 16 has initiated anti-dumping investigations during the period 1992-2005. 82 anti-dumping cases (out of 188 cases) initiated by India fall under the category of chemicals and petrochemicals, during this

STRATERGIES FOR GOOD PERFORMANCE

Focus on Core Competence

Chemical products trade is increasingly getting specialised all over the world. Innovation is increasingly becoming an important factor to focus on core competence and to become a leading player in specialty products. In the above context, it is important for the Indian chemical manufacturers to focus on select business segments where competitive advantage exists.

Strengthening Technological Competence Indian chemical industry should strive for continually improving its production processes and products by investing resources in technology development. Technological development may be achieved by the chemical industry at two levels. In the bulk products segment, the chemical industry should undertake process innovation with the objective of reduction in cost of production. In addition, the industry needs to invest in technological resources that would lead to specialized product development.

Improving Basic Management Capabilities Indian chemical industry has a good record of management expertise. This could be further leveraged with techniques such as Good Manufacturing Practices, Good Laboratory Practices, Total Quality Management, Total Production Management and Risk Management.

Adhering to Environmental Norms Since chemical substances are used in manufacture of consumer items such as paint, glue, insect spray, cosmetics and household cleaners, chemical producers have the responsibility in promoting safe management of substances starting from design in production to enduse, and their final disposal (hazardous waste). Further, in order to garner a greater share in world chemicals market, Indian chemical industry needs to address various developmental issues such as sustainable chemistry, adherence to safety and health and risk management.

Focus on R&D Indian chemical industry needs to focus on R&D in one or multiple areas. While R&D remains an universal imperative, its purpose 17 and nature varies across segments. The basic chemical sector should focus on process innovation and product development and strengthen their competitiveness through improvements based on performance and quality of products. Firms in knowledge based chemical sector should focus on R&D with the objective of achieving product leadership and process innovations. The petrochemical sector should focus on application R&D, as new applications have to be identified to increase use and application of polymers.

Collaboration The chemical industry needs to enhance their collaborative efforts in order to improve competitiveness. Collaborationamongst players in the chemical industry could happen both at cluster level (for sharing of common infrastructure) as also at firm level (for sharing of knowledge and technology). Collaboration with firms across borders for technology and investment would also give a boost to the industry. In addition, the players should also achieve greater level of industry-institutional partnership for knowledge development and sharing.

Marketing and Promotion Indian chemical industry should increasingly focus on marketing and promotion to achieve greater share in global chemical trade. The industry may endeavour to concentrate more on issues such as brand building, export promotion and market development.

Industry - Academia Linkages For transforming ideas into new products, partnership between industry and academia is a must. Thus, Indian chemical industry should leverage the potential of educational and research institutions 18 to source intellectual as well as human capital. Such linkages may be effectively used for setting up of in-house R&D facility or for outsourcing R&D activities.

REFERENCE

1. Prowess database , CMIE- 2010 2. Annual report 2010-11 Ministry of Commerce and Industry, Dept of Indutrial policy and promotion 3. Annual report 2010-11 chemical and petrochemical Industry 4. EXIM bank report 2008 5. Industrial survey 2011 by Hindu daily 6. Economic Survey 2010-2011